IBM Nudges U.S. Workers Toward Early Retirement

Exclusive: Thousands of Big Blue employees may be eligible for new program under which they can work reduced hours for less pay, and become immune from layoffs, if they agree to retire by late 2013.

In a move that could see thousands of employees exit within two years, IBM has instituted a program to offer U.S. workers who are approaching retirement age an option through which they can reduce their hours by almost half while retaining 70% of their pay. In exchange, the employees must pledge to retire by the end of next year.

As an added inducement, workers who participate will be immune from layoffs during their time in the program, which is voluntary. Called Transition to Retirement, the program is the latest sign that IBM wants to continue to reduce its U.S. headcount while building staff levels in developing, low-cost countries like India and Brazil as it seeks to diversify internationally and meet aggressive earnings targets.

IBM managers were informed about the program this week through an internal memo, obtained by InformationWeek. "We are announcing a new approach called Transition to Retirement, a one-time, voluntary program designed to balance the needs of our retirement-eligible employees in the U.S. with the needs of our business," the memo states.

Under the program, IBMers who "are at or near retirement eligibility in the U.S." can receive 70% of their full-time pay while working 60% of their normal hours. They'll also continue to receive benefits and 401k contributions and will be "exempt from any resource actions that may occur during the Transition to Retirement Period," the memo states. "In return, all participants agree to retire on or before December 31, 2013."

An IBM spokesman confirmed the program. The spokesman said eligible workers include those with 30 or more years at the company, regardless of age, and those who by Jan. 1, 2014 will be at least age 55, with 15 or more years at IBM. Older workers with fewer years of service are also eligible.

"The goal is for retirement eligible employees to have a conversation about retirement," said IBM's spokesman. "For IBM, the success measure is being able to prepare for and predict when retirement eligible workers might choose to exit. It gives our U.S. business managers the opportunity to start building skills behind what we know are going to be some very strong skills leaving the business."

The spokesman declined to say what the program might cost or how many IBM employees are eligible, but the number could easily be in the thousands, given Big Blue's history of employing so-called "lifers." IBM chairman Sam Palmisano, who was CEO until January, joined the company in 1973.

Word of the program comes as IBM is moving to reduce its U.S. headcount as part of a campaign to globalize its operations. It laid off more than 1,800 U.S. workers earlier this year, according to Alliance@IBM, a group that advocates for IBM employees. The group estimates that IBM has cut U.S. headcount by 29%, to about 95,000 workers, since 2005. IBM's does not comment on the size of its U.S. workforce. Globally, it employs about 433,000 workers.

The company has told shareholders it will deliver earnings per share of $20 per share by 2015, a number that some analysts say means IBM needs to aggressively manage costs over the next few years. But if it cuts too deep, customer service could suffer. IBM has said it expects to earn $15 per share in the current year.

The company has been moving heavily into offshore locations to tap the rich supply of lower-cost, skilled workers in Asia, Eastern Europe, and South America. It's also looking to sell more into emerging markets as Western economies slow.

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